The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ sovereign credit rating is unlikely to improve for at least three to five years, with this nation having suffered the greatest loss of stopover tourist market share in the Caribbean - 2.6 percentage points - since the recession.

Moody’s, in a relatively bleak analysis on the Bahamas and five other tourism-dependent Caribbean economies, warned that most would “continue to struggle with high debt levels” until 2020.

This was despite several nations, including the Bahamas (providing Baha Mar delivers), being poised to enjoy their highest GDP growth rates for five years in 2015-2016.

In particular, the Wall Street credit rating agency noted that with 13.6 per cent of government revenues being employed to meet interest payments on its existing debt, the Bahamas is currently performing better than only Jamaica and Barbados on this indicator.

And its analysis also reveals that the Bahamas is now enjoying the same average year-over-year GDP growth rate of 1 per cent as it did before the 2008-2009 financial crisis and global recession hit.

The Moody’s report shows that Bahamian economic growth has been stagnant for the past decade, as it averaged 1 per cent year-over-year between 2004-2008 - the same rate it has generated between 2010-2014.

Effectively, the Moody’s report, released quietly on Wednesday this weak, suggests there will be little correlation, or positive knock-on impact, between tourism and economic recoveries on one hand, and government debt, deficits and credit ratings on the other.

The document, examining the impact of a tourism rebound on the Caribbean’s economies and sovereign creditworthiness, said it was unlikely that a rising tide would ‘lift all boats’.

“Given the weak credit metrics of most of the Caribbean sovereigns, any improvements in these indicators will start from a low base and will likely have only a limited impact on the rating outlook for the region over the next two to three years,” Moody’s said.

“Therefore, despite potentially more benign growth dynamics, high government debt and interest burdens, limited fiscal flexibility and large external deficits will remain significant rating constraints for many Caribbean sovereigns for the foreseeable future.”

Which is not good news for the Bahamas, considering that its own sovereign credit rating is currently hovering two notches above ‘junk’ status.

Assessing the Bahamas alongside five other Caribbean tourism economies in Jamaica, Barbados, Belize, St Maarten and St Vincent, the Moody’s study noted that this nation “reversed negative growth rates” in stopover tourist arrivals last year.

Visitors to the Bahamas in this higher-yielding, higher spending category rose by 4.8 per cent in 2014 compared to a 4.1 per cent fall a year earlier. This nation generated a 1.6 per cent stopover growth average for the period 2010-2014.

The Bahamas’ 2014 stopover growth, though, was exceeded by all Caribbean nations bar Jamaica, Barbados and St Maarten.

And, while the Bahamas ad other Caribbean countries appeared well-placed to capitalise on US, UK and global economic recovery, and the reduction in oil prices, Moody’s indicated the reality was a lot less inspiring.

“On the other end of the spectrum, the Bahamas, Barbados and St Vincent have not yet recovered stayover visits since the global economic downturn, which possibly indicates a structural erosion of competitiveness,” Moody’s said.

“The Bahamas and Barbados, two traditional regional tourism powerhouses, have recorded the largest loss of market share compared to 2007: 2.6 and 0.9 percentage points, respectively, reflecting higher cost structures and the relative decline in recent years of the higher-end boutique segment they have historically catered to.”

This assessment was reached in spite of the Bahamas being among the credit rating agency’s Caribbean candidates “likely to record in 2015-2016 their strongest growth in the last five years”.

“Improving growth prospects should lead to more benign debt dynamics, allowing some governments to eventually stabilise and possibly reverse rising debt trends,” Moody’s said.

“Nevertheless, over the next three to five years, most Caribbean sovereigns are likely to continue to struggle with government debt levels.”

It added: “Relatively high interest burdens, measured as the ratio of interest payments to government revenues, are another factor that will continue to constrain sovereign creditworthiness in the Caribbean.

“Jamaica and Barbados are among the 10 sovereigns with the highest interest-to-revenue burdens in our rating universe, with average ratios of 34.8 per cent and 24.8 per cent in 2010-14, respectively. The Bahamas follows not far behind with 13.6 per cent.”

It now remains to be seen whether Value-Added Tax (VAT) and other measures introduced by the Government will succeed in turning the public finances around.

For the average Bahamian, the Moody’s assessment means that ever-increasing sums of government revenue are being taken away from providing the services that matter to him/her - social security, education, health, police and security - to pay the nation’s rising $6 billion-plus debt.

And Moody’s assessment that the Bahamas’ sovereign credit rating is unlikely to improve will also impact ordinary Bahamians, as it means this nation will not enjoy reduced borrowing costs on the international capital markets, further impacting funds available for public services.

Summing up this nation’s situation, Moody’s added: “The Bahamas and Barbados have struggled to achieve economic growth since the 2008-09 downturn. In the Bahamas, high visitor growth in 2012 was offset by significant declines in construction & real estate and financial services, the other two important economic sectors.”